Many of us have been surprised at the sell off of stocks such as CSL and James Hardie. The magnitude of the negative market reactions suggests that AI-driven bots could be at work. Are these creations of the digital world a problem or an opportunity?
This reporting season has thrown up an investing curve ball with the era of AI-driven bots. Even investors and those who advise financial planners are starting to use AI generative chatbots to work out whether they should buy or sell stocks and other investments. And it looks like reporting seasons (that bring new revelations from CEOs) could create a bag of curve balls in the future once these bots start doing their ‘thinking’.
Even though CSL and James Hardie didn’t report brilliantly, many human beings (as opposed to investing bots) think there has been an overreaction, thanks to AI-driven investment decisions.
As an example, let’s take CSL and see what the analysts are thinking. The consensus view is that the company’s share price should rise 32.8%. Seven out of seven intelligent minds (i.e. humans) see CSL as a buy.
Both UBS and Citi can see a 40.92% rise ahead. FNArena’s reporter summarised what the smarties at Macquarie came up with after digesting the companies show-and-tell last week:
“On further inspection, Macquarie highlights the demerger of Seqirus will facilitate faster cost out, capital allocation and ability to focus on opportunities. Subject to approval, the demerger is targeted for the end of FY26. Management continues to see double-digit earnings growth in the medium term, boosted by cost outs and reinvestment into revenue growth initiatives.
“Macquarie lowers its EPS forecasts by -2% for FY26 and -5% for FY27. Target price retreats to $295.90, down -15% due to EPS and forex changes. Outperform retained with a positive longer-term view. Today’s FY25 result by CSL showed profit (NPATA) 2% ahead of Macquarie and consensus, with revenue and earnings (EBIT) slightly below expectations.”
Macquarie analysts also see lower taxes and interest costs, a currency tailwind, the Seqiris demerger and a $750 million buyback next year, plus cost out savings are expected with a smaller workforce.
But how come the bots didn’t see this? It all becomes more worrying when their initial selloffs were so significant that normal investors would’ve joined in as the trend downwards spooked the market.
Regrettably, this is the new world we live in. While you might lose capital/wealth in the short run, there’s potential to make money dollar-cost averaging when it appears bots are creating excessive share price dumpings.
The above chart shows the market reaction, which is miles out of whack compared to what experts on CSL are thinking. Of course, while they could be wrong, so could the bots.
One of the first fund managers to embrace AI for analysing what stocks and other investments to buy and sell was Ray Dalio of Bridgewater Associates. When I asked Chat GPT how his fund had performed, it told me it performed strongly in 2025. Dalio’s Pure Alpha fund was up 17% compared to the S&P 500 that was up 6%. And his All Weather fund was up 8%.
But let me make a few points about Ray Dalio and AI:
- The S&P 500 was up 9.84% in 2025 or year-to-date. So, the All Weather fund hasn’t shot the lights out.
- A global fund like WCMQ was up close to 30% over the same time period. Other more ‘human-driven’ funds have done better than Dalio’s funds.
- I asked the bot to assess the All Weather fund over a longer period. This is what it told me: The fund’s return was 43%, but a simple 60% growth and 40% defensive fund returned 90%! That’s not a big win for AI created portfolios.
I think the belief in what AI brings to the investing table will prove to be grossly overrated. I love the assistance it can give me at looking at the past, though I do have to check the facts! However, when it comes to guessing the future, comprehending how Australian investors will react to say a falling currency, a hard-to-read RBA, a possible pandemic and an unpredictable government or US President, then I think I’d back myself, helped by some of the smart, naturally intelligent company and market experts who I’ve relied on for decades.
The day AI accurately predicts a black swan event that sends the stock market crashing might be the day I surrender my stock market smarts to some artificially intelligent chatbot.
